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37
Policy • Vol. 31 No. 1 • Autumn 2015
MAtt tAylor
Hidden Complexity
Comprehension is not necessarily much better on
the other side of the Treasury benches. In February,
Shadow Treasurer Chris Bowen stumbled in a Sky
News interview when Alan Jones asked him, “There
is a point at which we start paying tax, what is it?”
After a few minutes spent avoiding the question,
the shadow treasurer replied, “I’m not going to do a
pop quiz for you, Alan.” Jones was only too happy
to volunteer an answer: “It’s $18,200.”
The figure Jones gave is wrong. The 2014–15
tax-free threshold for an individual taxpayer is
actually $20,542, as indicated in Figure 1. Perhaps
some confusion is forgivable. After all, the system
is considerably more complex than the personal
income tax thresholds and rates listed on the
Australian Taxation Office website would suggest.
The reason for this is that there are a range of tax
offsets that reduce the amount paid on taxable
income between $18,200 and $66,667. There
is also the Medicare Levy, which increases the
amount of tax paid starting at $20,542. While his
interview with Alan Jones was not one of his finest,
Bowen did at least give the impression that he
understood this.
This complexity is illustrated in the next figure,
which shows how Australia’s tax thresholds and
tax rates have evolved over the fifteen years since
the last major raft of tax reform that occurred
under the Howard government under the banner
of “Australia’s New Tax System.” The left panel
presents the formal tax system as described by
the personal income tax thresholds and tax rates,
while the panel on the right gives an indication
of tax thresholds and tax rates after accounting
for the Low Income Tax Offset (LITO) and the
Figure 2: Formal Income Tax System Compared to the Effective Income Tax System for the Financial Years
2000–01 to 2014–15
Source: Australain Taxation Office
Source: Model of the Australain Taxation System (MATTS)